KARACHI: Pakistan Business Forum (PBF) says rupee will likely to come under immense pressure in the first quarter of the next fiscal year if the IMF programme remains stalled: fingers crossed the coming two to three days are very crucial.

PBF Spokesperson Zainab Jatoi while talking to media said incumbent government had informed the country last year that it would get Rs843 billion from banks during FY23 finishing this month. However, the federal government has already borrowed Rs3.176 trillion from banks between July 1, 2022, and June 2, 2023 (28 days before the end of the year).

This not only crowded out the private sector and caused economic growth to plummet from 6.1% last year to an estimated 0.3 percent this year, but it also caused inflation to reach a 50-year high of 38 percent.

She said country lacks parliamentary democracy, which gives the parliament the authority to question the government. We will be better able to deal with the current economic crisis if parliamentary democracy regains its true spirit and the media is granted constitutionally guaranteed freedom.

In this regard it is necessary to hold free and fair elections on time. However, if elections are postponed, the current political polarization will worsen, causing irreparable damage to the economy, said Zainab Jatoi.

She said let’s examine some additional indicators of the financial mess. The government had anticipated spending Rs3.95 trillion on interest payments on domestic and foreign debt for FY23. Real interest instalments, be that as it may, ate up Rs3.582trn inside 3/4 of FY23 and are supposed to wind up higher than Rs5.3trn toward the finish of the financial year on June 30.

Real factors, such as increases in interest rates to contain inflation and a decline in the value of the rupee throughout the year, account for this significant deviance from the budgetary target. In any case, the parliamentary responsibility for such slippages is no place to be seen.

The anticipated spending for FY24 under the heading of interest payments is Rs7.303 trillion, and the target for tax revenue is Rs9.2 trillion. In other words, interest payments alone would require approximately 80 percent of the tax revenue.

How will a family survive with the remaining Rs20,000 if they earn Rs100,000 per month and pay Rs80,000 in interest to creditors, she asked. This is the issue confronting Pakistan now. In addition, the volume and percentage of total tax revenue spent on interest payments may continue to rise annually if no emergency measures are taken. When that occurs, can the state function?

Similarly no friendly nation can continue to lend billions of dollars when it is clear that our ability to repay these loans is deteriorating at an alarming rate. The external sector problem is equally appalling. In FY24, beginning from July 1, Pakistan needs somewhat more than $5.5bn for outside obligation instalments each quarter, as per State Bank of Pakistan (SBP). Every quarter, where will the $5.5 billion come from?

She said let’s say that Pakistan’s exports and remittances will be sufficient to finance imports in the best case scenario. And just for the sake of the argument, imagine that whatever little foreign investment we do get will also match the foreign exchange outflows caused by multinational companies in the country repatriating funds. However, the requirement to repay external debt will not change.

Keep in mind that no friendly and brotherly nations can ever rollover the money they have deposited with the State Bank of Pakistan. They also cannot continue to lend us billions of dollars when they are aware of our diminishing capacity to repay these loans.

As of June 9, the SBP’s unfamiliar trade saves remained at $4bn, enough to cover scarcely a month of products’ imports bill. If the International Monetary Fund (IMF) loan program, which stalled in November 2022, is not revived, the rupee will likely come under tremendous pressure in the first quarter of the next fiscal year (July-September).

The country will only get closer to the possibility of defaulting on a sovereign loan if its forex reserves continue to dwindle. Pakistan will have to come up with ‘plan B’ as PBF demanded earlier, she said.

PBF Spokesperson further said in any case, as time passes, the distinctions among Pakistan and the IMF seem to extend. And geopolitics is one of the reasons.

Pakistan’s debt restructuring is seen as unavoidable, but the situation will improve as soon as the IMF funding line is reopened. Because Pakistan will suffer long-term consequences if it is not able to close the $23 billion external financing gap for the following fiscal year through “alternative means.”

Copyright Business Recorder, 2023